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GBP/JPY struggles close to 159 as focus turns to Japan's Inflation

Alina Haynes

Jan 19, 2023 15:10



In early Asian trade, the GBP/JPY pair is behaving erratically close to the critical level of 159.00. Following a fall from Wednesday's high above 161.50, the cross is now rangebound. Despite Governor Haruhiko Kuroda's dovish statements, the asset saw a significant decrease as GBP/JPY gave up the Bank of Japan's (BoJ) policy-driven gains.


After maintaining the interest rate at -0.10% and the 10-year Japanese Government Bonds (JGBs) around 0%, BoJ Kuroda claimed that there is "no need to further extend bond target band," causing the GBP/JPY exchange rate to decline. He continued by stating that Japan's economy is continuing on the road to recovery from the epidemic, and that the Bank of Japan intends to achieve its inflation target of 2% in tandem with wage growth.


The nearing end of Governor Kuroda's term at the end of April will continue to fuel rumors of a policy shift under new leadership, according to analysts at MUFG who predict that the Yen sell-off will be limited and maintain an optimistic stance for the JPY in the coming year. They remarked, "We expect market participants to maintain their skepticism regarding the long-term viability of YCC policy settings."


The release of the National Consumer Price Index (CPI) on Friday will offer further guidance for the Japanese Yen. According to the consensus, the annual headline CPI (Dec) is expected to rise from 3.8% to 4.4%. It is anticipated that the core inflation rate, which includes oil and food prices, would rise to 2.9% from the previously reported 2.8%.


The Bank of England (BoE) will be dissatisfied by the United Kingdom's headline inflation decelerating to 10.5% from 10.6%, as the current CPI is much over the median rate. The market expects Andrew Bailey, governor of the Bank of England, to hike interest rates somewhat more than anticipated.